Tuesday, October 19, 2021

Could you structure your investments in property or cash in a more Inheritance Tax efficient manner?

By Krista Fox, tax partner, Streets Chartered Accountants

In the absence of careful planning, investment property and cash may be subject to Inheritance Tax (IHT) at 40%. Why give 40% of your accumulated wealth to the Government if you don’t have to?

Holdings of investment property and cash can potentially be structured such that the value of these assets benefit from an exemption from IHT (Business Property Relief (BPR)). This will ensure that IHT on death is mitigated and could also open up the opportunity for tax efficient lifetime planning.

Companies holding investments in property and/or cash

If you have a company that holds significant cash and/or property investments the value attributable to your shareholding may not qualify for 100% BPR.

However, with restructuring it is possible that you could qualify for BPR in full. Relevant planning may include establishing a money lending business that could, if appropriate, be operated alongside a property business. A money lending business can qualify for an exemption from BPR if certain criteria are met. The relevant business can include lending money to family members, related companies and partnerships.

Individuals holding investments in property and/or cash

Likewise, if you hold surplus cash and/or property investments personally or in partnership these assets are unlikely to qualify for any relief from IHT.

However, a company can be a tax efficient structure that can create opportunities for planning. For example, a company could be used to structure the holding of assets to benefit from 100% BPR that may not be available through direct ownership, perhaps using the principle of a money lending business as mentioned above. With this in mind companies are increasingly being used as a vehicle for families to structure the holding of their investments (a Family Investment Company).

Potential benefits of a Family Investment Company include:

  • A flexible structure defined by and under the control of family members
  • Offers asset protection
  • Tax efficient accumulation of wealth
  • A platform for tax efficient succession planning

So, with careful and sensible planning, IHT remains a ‘voluntary tax’.

The optimum approach will be tailored to each case and aligned to business and personal objectives.   Reviewing the structure of investments in property and cash, and considering the effective use of a company, could mitigate IHT. This should be considered in the context of a broader IHT strategy.

Should you be reviewing your IHT position?

For further guidance and advice please contact Krista Fox on 01522 551200 or email kfox@streetsweb.co.uk

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